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Basic Generally Accepted Accounting Principles (GAAP) MCQ

1. What is the requirement regarding the format of financial reports and comprehensive income?

There is no requirement on the format of financial reports.

They must be font size 14 and not exceed 5 pages.

They should detail out every expense.

That expense categories be limited to no more than 10.

Answer

Correct Answer: There is no requirement on the format of financial reports.

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2. What are companies required to present on their financial statements?

Basic EPS

Diluted EPS

Neither Diluted or Basic EPS

Both Basic and Diluted EPS

Answer

Correct Answer: Both Basic and Diluted EPS

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3. Which of the following is one of the secondary purposes of accounting for income taxes?

To engage in tax evasion

To increase the share price

To determine management bonuses

To recognize deferred tax liabilities and assets

Answer

Correct Answer: To recognize deferred tax liabilities and assets

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4. Which FASB statement addresses the proper accounting for contingent liabilities?

FASB 201

FASB 5

FASB 99

FASB 144

Answer

Correct Answer: FASB 5

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5. Why is the value of a derivative continually adjusted for accounting purposes?

To reflect the current market value, since values fluctuate frequently

To make accounting financial reports more attractive

To increase earnings

To lower liability until the derivative is written off

Answer

Correct Answer: To reflect the current market value, since values fluctuate frequently

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6. What are the tax implications of consolidation?

It creates a higher tax burden.

It reduces tax burden.

Depends on the state the company is located in.

None, if consolidation is for financial reporting purposes and not for tax purposes.

Answer

Correct Answer: None, if consolidation is for financial reporting purposes and not for tax purposes.

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7. What impact does an accounting change typically have?

All statements going forward must be presented under the old method as well as the new method.

All statements going forward must reflect the new policy but there is no other effect.

Prior financial statements must be restated correctly given the change.

The company must create several

Answer

Correct Answer: All statements going forward must reflect the new policy but there is no other effect.

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8. What is a contingent convertible bond issuance?

A convertible debt instrument which can only be converted if the management says the holders can

A convertible debt instrument which can only be converted if the share price reaches a specific level

A debt conversion which is contingent on the level of earnings

A debt conversion which is contingent on a board directive

Answer

Correct Answer: A convertible debt instrument which can only be converted if the share price reaches a specific level

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9. What is the purpose of stipulating exactly how earnings per share is calculated?

It creates a level playing field for comparing all companies who adhere to the same guidelines.

It forces the management to think about their earnings.

It drives companies to higher profit levels.

It generates more tax income for the government.

Answer

Correct Answer: It creates a level playing field for comparing all companies who adhere to the same guidelines.

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10. What is the conversion rate?

The interest rate earned on the bond

The number of people who convert the debt compared to those who don't

The number of years the convertible debt is outstanding

The rate at which each dollar of bond converts into shares

Answer

Correct Answer: The interest rate earned on the bond

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11. What is the definition of a "discontinued operation"?

A part of a company that has been sold off or is being held out for sale

When a company decides to no longer manufacture a certain product

Operations which were not profitable last year

When a company goes bankrupt

Answer

Correct Answer: A part of a company that has been sold off or is being held out for sale

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12. Which FASB Statement addresses the accounting for derivatives?

FASB 12

FASB 144

FASB 133

FASB 201

Answer

Correct Answer: FASB 133

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13. When should a contingent liability be reported financially?

After legal documents obligating the firm are signed

When the contingent liability becomes probable

In the period that follows the documenting of the liability

Retroactively

Answer

Correct Answer: When the contingent liability becomes probable

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14. Which of the following is a requirement for the capitalization of interest?

The amount must be material.

The rate must be at least 5%.

The loan must be made by a domestic company.

The asset must be located domestically.

Answer

Correct Answer: The amount must be material.

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15. Which of the FASB statements discusses the accounting standard for reporting comprehensive income?

FASB 201

FASB 133

FASB 144

FASB 130

Answer

Correct Answer: FASB 130

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16. What is a "mark to market" adjustment?

Selling off assets

Adjusting the price of a derivative once it is sold

Buying offsetting derivatives to mitigate risk

Adjusting the book value of a derivative to the current market rate

Answer

Correct Answer: Adjusting the book value of a derivative to the current market rate

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17. Which of the following would be a derivative instrument?

Common stock

Preferred stock

Options contracts

Debt instrument

Answer

Correct Answer: Options contracts

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18. Which section of FASB deals with Accounting for Inventory Costs?

FASB 401

FASB 151

FASB 10

It is not covered by FASB

Answer

Correct Answer: FASB 151

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19. Why are uncollectible accounts receivable considered a contingency?

Because they are an asset

Because they are material

Because they are not probable

Because they can be estimated and it is probable not all accounts receivable will be collected

Answer

Correct Answer: Because they can be estimated and it is probable not all accounts receivable will be collected

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20. What is convertible debt?

Share issuance which can be converted into debt

A debt issuance which can be converted into the shares of the issuing company

The same as preferred stock

A debt which can earn a higher interest rate

Answer

Correct Answer: A debt issuance which can be converted into the shares of the issuing company

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21. What is comprehensive income?

Income less any taxes

Income from the main product line, without clubbing the income from other product lines

Income including all extraordinary items

Normal income including revenues, cogs, expenses, gains and losses

Answer

Correct Answer: Normal income including revenues, cogs, expenses, gains and losses

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22. What is meant by the term "dilution"?

It is just another term for common stock.

Common stock plus preferred stock

The number of shares that would be outstanding if all options and other contracts related to shares were executed

Common Stock and other equity

Answer

Correct Answer: The number of shares that would be outstanding if all options and other contracts related to shares were executed

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23. Which FASB statement addresses convertible debt?

FASB 12

FASB 101

FASB 144

FASB 150

Answer

Correct Answer: FASB 150

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24. What is meant by "hedging"?

Selling of derivatives

The activity of mitigating risk, using one instrument to lower the overall risk of a portfolio

Purchasing stocks in several industries to mitigate risk

Selling company stock at an inflated value

Answer

Correct Answer: The activity of mitigating risk, using one instrument to lower the overall risk of a portfolio

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25. What impact may a financial report restatement have on the current share price?

It always leads to an increase in the price.

It depends on the nature and magnitude of the correction.

It always leads to a decrease in the stock price.

It has no impact at all.

Answer

Correct Answer: It depends on the nature and magnitude of the correction.

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26. What is the general rule for accounting for inventory?

It should be accounted for at fair market value.

It should be accounted for at cost.

It should be accounted for at a set gross margin rate.

The method can vary depending on the nature of the inventory item.

Answer

Correct Answer: It should be accounted for at cost.

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27. Which FASB Statement addresses accounting for earnings per share?

FASB 128

FASB 55

FASB 144

FASB 12

Answer

Correct Answer: FASB 128

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28. What is stock dividend as compared to cash dividend?

The issuance of cash which can only be used to buy stock

The issuance of additional stock to shareholders in lieu of cash

The issuance of stock in the current period, traded for cash in a later period under contract

A promise by the company that the stock price will increase

Answer

Correct Answer: The issuance of additional stock to shareholders in lieu of cash

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29. Which of the following would be an accounting change which would require a restatement of the previous financial reports?

Change in how many stock options were issued to a director, made effective retrospectively from the previous year

Paying arrears to a laid off employee

The firing of an employee which has been planned for two months in advance

Change in the management's salary going forward, but discussed last year

Answer

Correct Answer: Change in how many stock options were issued to a director, made effective retrospectively from the previous year

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30. What is a "temporary difference"?

A difference due to an error in accounting

A difference in tax law and GAAP which creates a temporary difference in financial reporting

A difference in the management's perspective on the current period's earnings

A difference between the tax department's and accounting department's accounting systems

Answer

Correct Answer: A difference in tax law and GAAP which creates a temporary difference in financial reporting

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31. What entries are made to correct an error?

Dr: Revenue, Cr: COGS

Depends on the correction, can impact any account

Dr: Cash, Cr: Expense

Dr: Equity, Cr: Liabilities

Answer

Correct Answer: Depends on the correction, can impact any account

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32. What is another way of saying what comprehensive income is?

Income including all extraordinary income and losses

Normal income earned in the ongoing operations of the company

Income before income taxes

Income excluding salaries

Answer

Correct Answer: Normal income earned in the ongoing operations of the company

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33. What accounting principle(s) does the principle of impairment adhere to?

Matching & Timeliness

Matching & Conservatism

Conservatism & Timeliness

Materiality & Matching

Answer

Correct Answer: Matching & Conservatism

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34. Why would a shareholder want to know what diluted EPS as compared to basic EPS?

Because it represents what a stock can be sold for currently

Because it reduces the stockholder's tax liability

Because it will reflect the potential dilution of the value of the company which can be excessive for companies with large numbers of options outstanding

Because it represents how well the management is performing in comparison with the past management

Answer

Correct Answer: Because it will reflect the potential dilution of the value of the company which can be excessive for companies with large numbers of options outstanding

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35. Who does an error correction financial report restatement benefit?

The company

The investors

The employees

All of the above

Answer

Correct Answer: All of the above

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36. What is the primary goal of accounting for income taxes?

To demonstrate to the stockholders that the firm is tax savvy

To determine how much money to put in savings for year end taxes

To recognize the current year's tax obligation

To find out how much would be owed so the firm can engage in tax evasion

Answer

Correct Answer: To recognize the current year's tax obligation

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37. Which of the FASB statements discusses how accounting changes are to be handled?

FASB 123

FASB 99

FASB 154

FASB 144

Answer

Correct Answer: FASB 154

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38. What is the purpose of consolidating financial statements?

It hides the individual mistakes of different divisions.

It reduces the tax burden of the corporation.

It allows stockholders and investors to see the financial health of a company and all its divisions and subsidiary companies in one financial statement.

It shows investors how much was spent on total salaries.

Answer

Correct Answer: It allows stockholders and investors to see the financial health of a company and all its divisions and subsidiary companies in one financial statement.

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39. Which of the following would impairment not apply to?

Land

Intangible Assets

Equipment

Office Supplies

Answer

Correct Answer: Office Supplies

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40. What is a contingency in general?

Typically an asset purchase which depends on the expenses for the period

A pending lawsuit already filed

Potential liabilities with a strong probability that it will happen

Changes in equity

Answer

Correct Answer: Potential liabilities with a strong probability that it will happen

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41. Which of the FASB statements discusses the accounting treatment of discontinued operations?

FASB 123

FASB 144

FASB 12

FASB 201

Answer

Correct Answer: FASB 144

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42. What interest rate would be used to calculate interest capitalization if there is no specific loan associated with the asset except just the overall company debt?

The lowest rate of interest the company has on loans

The highest rate of interest the company has on loans

The Federal reserve rate

A weighted rate based on the amounts of loans and rates carried by the company

Answer

Correct Answer: A weighted rate based on the amounts of loans and rates carried by the company

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43. What is a "permanent difference"

A difference in the management's perspective on all the earnings of the company

A difference in tax law and GAAP which will never be resolved

A difference in the tax rate between two different countries a firm operates in

A difference in the GAAP principles used on the books

Answer

Correct Answer: A difference in tax law and GAAP which will never be resolved

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44. What are direct costs?

Costs of management salaries

Rent and utilities

Costs which are directly attributable to the production of an inventory item

General office costs which are then allocated to the inventory as burden

Answer

Correct Answer: Costs which are directly attributable to the production of an inventory item

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45. Why would a company want to discontinue the operations of a division?

Because it generates too much income

Because it is not profitable and won't be in the future

Because it is located outside of the company's location

Because the tax rate is too high

Answer

Correct Answer: Because it is not profitable and won't be in the future

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46. What is the accounting treatment of stock dividend when it is issued (not declared)?

Dr: Cash, Cr: Stock Expense

Dr: Stock Expense, Cr: Cash

Dr: Equity, Cr: Dividend Payable

Dr: Dividend Payable Cr: Common Stock

Answer

Correct Answer: Dr: Dividend Payable Cr: Common Stock

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47. What is a special purpose entity?

The same as a different product line

A subsidiary entity created for a specific reason

A subsidiary company in another country

An entity created solely to avoid taxes

Answer

Correct Answer: A subsidiary entity created for a specific reason

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48. What are the 3 important dates pertaining to the issuance of stock dividend?

Date of record, Date of payment, Date of distribution

Date of issuance, Date of delivery, Date of record

Date of payment, Date of record, Date of company formation

Date of declaration, Date of record, Date of distribution

Answer

Correct Answer: Date of declaration, Date of record, Date of distribution

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49. How are income taxes calculated in general for the current period?

Using the highest tax bracket in the name of conservatism

Using the taxable net income multiplied by the estimated tax rate for the company

As an average for the year

Based on previous year's tax amount for the same period

Answer

Correct Answer: Using the taxable net income multiplied by the estimated tax rate for the company

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50. Which of the following would be a contingency needing to be booked?

Sale of an asset

Sale of inventory

Management salaries for the following period

Product warranty obligations

Answer

Correct Answer: Product warranty obligations

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51. Why would a company issue stock dividend?

Because shareholders prefer stock to cash

Because they can issue the stock of any corporation to the shareholders

Because it involves lower tax impact to both the shareholders and the corporation

Because no cash outlay is required while the shareholders are still rewarded

Answer

Correct Answer: Because no cash outlay is required while the shareholders are still rewarded

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52. Which of the following is a method of testing for impairment?

Net Income potential method

Discounted cash flow value compared to carrying value

Asking management what a fair value is

Looking at the historical cost

Answer

Correct Answer: Discounted cash flow value compared to carrying value

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53. Which of the FASB statements discusses the methodology to be applied when consolidating financial statements?

FASB 160

FASB 12

FASB 144

FASB 123

Answer

Correct Answer: FASB 160

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54. Why are direct costs added to the value of the inventory?

They are costs directly related to the creating of an inventory item and without them, there would be no inventory.

It is required by the IRS tax laws.

It helps reduce expenses on the income statement.

It inflates inventory values on the balance sheet which looks good to the investors.

Answer

Correct Answer: They are costs directly related to the creating of an inventory item and without them, there would be no inventory.

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55. What does the term derivative mean for accounting purposes?

A financial instrument the value of which is derived from another financial instrument

A financial instrument such as a stock or bond

A liability of which the obligation is derived based on interest rates

An asset the value of which is derived by the current trade in value

Answer

Correct Answer: A financial instrument the value of which is derived from another financial instrument

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56. Which of the following would not be included in comprehensive income?

Loss due to a bad management decision

Revenue from a subsidiary company

Management salaries

Loss due to a hurricane for a company located in an area where hurricanes are not typical

Answer

Correct Answer: Loss due to a hurricane for a company located in an area where hurricanes are not typical

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57. Under which of the following situations would prior financial reports not have to be restated?

The change is due to a policy change and in writing.

The change materially affects what EPS would have been last year.

The change has no impact on previous accounting or financial reports.

The change is due to an error in the interpretation of accounting GAAP law.

Answer

Correct Answer: The change has no impact on previous accounting or financial reports.

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58. What is the proper financial reporting treatment for a discontinued operation?

Just include a statement that the firm is going to discontinue an operation, but leave the accounting combined.

Create an entirely separate entity for the discontinued operation if it is not already there, and put it into bankruptcy.

Report it separately on the balance sheet and income statement.

Expense all of the assets of the discontinued operation in the current period.

Answer

Correct Answer: Report it separately on the balance sheet and income statement.

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59. How is the interest cost to be capitalized calculated?

By taking into account the interest cost on the borrowings made to complete the asset

By using the average market rate

By following the Federal reserve rate

By following the interest rate on the company's savings account

Answer

Correct Answer: By taking into account the interest cost on the borrowings made to complete the asset

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60. Which of the following is not a part of inventory?

Finished Goods

Work in Progress

Raw Materials

Cost of Goods Sold

Answer

Correct Answer: Cost of Goods Sold

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61. What is the general rule regarding the reporting of comprehensive income?

That it should not be shown as it is misleading

That comprehensive income should be calculated and prominently displayed on financial reports

That it should be mailed in a letter to all shareholders

That it should only be calculated yearly

Answer

Correct Answer: That comprehensive income should be calculated and prominently displayed on financial reports

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62. What is the alternative to the capitalization of interest costs?

Do not account for them at all

Expense interest costs

Create an current asset

Record them as equity

Answer

Correct Answer: Expense interest costs

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63. What is the effect of a stock split on a company's financial records?

It depends on the value of the stock and the number of shares which are split.

It creates a Credit to Common Stock.

None; it changes the number of shares outstanding but not the value of the stock.

It creates a Debit to Common Stock.

Answer

Correct Answer: None; it changes the number of shares outstanding but not the value of the stock.

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64. Which of the following would qualify for capitalization of interest?

An inventory item which takes 1 week to process

A ship which is built over 2 years

A loan taken by a company to fund general operations

A mechanic's lien placed on the company

Answer

Correct Answer: A ship which is built over 2 years

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65. Which of the following would be considered a discontinued operation?

A dog food manufacturer decides to stop offering low fat dog food because it doesn't make money.

A library decides to stop carrying kids' novels.

A stock brokerage goes out of business.

A jacket manufacturer decides to sell its rain coat division which has its own plant.

Answer

Correct Answer: A jacket manufacturer decides to sell its rain coat division which has its own plant.

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66. Which of the following words describes a situation when a contingent liability should be recorded?

Remote

Probable

Possible

Never

Answer

Correct Answer: Probable

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67. What account is credited in accounting when impairment is booked?

Telephone Expense

Accumulated Depreciation

Loss on Impairment

The Asset itself

Answer

Correct Answer: The Asset itself

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68. Which FASB deals with the impairment of long lived assets?

FASB 201

FASB 144

FASB 101

FASB 99

Answer

Correct Answer: FASB 201

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69. Why do firms distinguish income from continuing operations and income from discontinued operations?

Because it makes the firm look smart for discontinuing an operation

Because it increases the company's per share price

Because it reduces the tax effect if it is reported separately

Because it gives investors and stockholders insight into the impact that the sale of the discontinued operation will have on the company

Answer

Correct Answer: Because it gives investors and stockholders insight into the impact that the sale of the discontinued operation will have on the company

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70. What number of shares is used in calculating basic EPS?

Weighted average number of shares outstanding for the period

The closing number of shares outstanding

The opening number of shares outstanding

The total number of shares authorized

Answer

Correct Answer: Weighted average number of shares outstanding for the period

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71. Which FASB Statement addresses accounting for stock dividends?

FASB 144

FASB 201

FASB 99

FASB 123

Answer

Correct Answer: FASB 123

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72. What are "eliminating entries"?

Accounting entries which hide negative items

Accounting entries made on purpose to reduce tax expense

Accounting entries made to reflect accruals

Accounting entries made to cancel out the duplication of accounting impact on the books of two consolidating companies

Answer

Correct Answer: Accounting entries made to cancel out the duplication of accounting impact on the books of two consolidating companies

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73. When is the stock value of stock dividend determined?

On the date of issuance

On the date of declaration

On the date of record

On December 31st of the current year

Answer

Correct Answer: On the date of record

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74. What is the date of abandonment?

The day the asset is purchased

The day the asset is fully depreciated

The day the asset is sold

The day the asset ceases to be utilized

Answer

Correct Answer: The day the asset ceases to be utilized

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75. What is a deferred tax asset?

A tangible asset which is tax deductible in the current year

A tangible asset which can be deducted in future years

Temporary differences which will be deductible in future years for tax purposes, creating a positive tax benefit

Permanent differences which can later be deducted

Answer

Correct Answer: Temporary differences which will be deductible in future years for tax purposes, creating a positive tax benefit

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76. What is the purpose of a derivative instrument?

Additional investment activity for companies to use their cash

Allowing the firm to offer its staff a way to participate in the growth of the company

Creating a guarantee of profit

Mitigating risk on the changing value of the asset on which it is based

Answer

Correct Answer: Mitigating risk on the changing value of the asset on which it is based

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77. What value should a contingency be booked at?

Not be booked until it occurs, and then booked using the actual value

At the actual amount, and retroactively

Using the best estimate and then adding 10%

Using the most likely estimated amount, factoring in conservatism

Answer

Correct Answer: Using the most likely estimated amount, factoring in conservatism

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78. Which FASB statement addresses the capitalization of interest?

FASB 101

FASB 144

FASB 201

FASB 34

Answer

Correct Answer: FASB 34

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79. How often are consolidated financial statements prepared?

Whenever a company wishes

At least yearly, can be monthly

There is no requirement

Once in a decade

Answer

Correct Answer: At least yearly, can be monthly

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80. What is "impairment"?

Expensing of the cost of goods sold

A revaluation of the assets on the books

An asset becoming unusable

Natural resources getting used up

Answer

Correct Answer: A revaluation of the assets on the books

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81. What is "earnings per share"?

The total earnings of the company

The ratio of a company's earnings to the number of shares outstanding

Earnings of the company less any dividends

Earnings of the company divided by the number of preferred shares outstanding

Answer

Correct Answer: The ratio of a company's earnings to the number of shares outstanding

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82. What is "Work in Progress"?

Goods ready for sale

Raw material which has just been received

Inventory which is in the process of being completed at the end of the reporting period

Raw material which has been unpacked and is ready to be utilized in the manufacturing process

Answer

Correct Answer: Inventory which is in the process of being completed at the end of the reporting period

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83. What did APB14-1 stipulate for retroactive reporting of convertible debt?

No retroactive reporting is required.

All convertible debt, both retired and active, is required to be retroactively restated.

Companies can restate past financial reports if it is to their benefit.

Any current outstanding convertible debt must be restated retroactively, any retired convertible debt does not have to be restated.

Answer

Correct Answer: Any current outstanding convertible debt must be restated retroactively, any retired convertible debt does not have to be restated.

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84. What did APB 14-1 issued in 2008 do to the accounting rules related to convertible debt?

Restricted companies' abilities to issue convertible debt

Made rules regarding the accounting of convertible debt less restrictive

Laid down the requirement that companies account for the debt and equity components of convertible debt separately

Forced companies to convert all debt

Answer

Correct Answer: Laid down the requirement that companies account for the debt and equity components of convertible debt separately

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85. At what stage in the manufacturing cycle is Raw Materials?

End of the manufacturing cycle, after processing is complete

When materials have been ordered from the vendors

When inventory has been received and is available to be issued to the manufacturing process

When the materials have been issued to the shop floor

Answer

Correct Answer: When inventory has been received and is available to be issued to the manufacturing process

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86. True or false? Private disclosure standards are governed by the SEC.

False

True

Answer

Correct Answer: False

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87. Which of the following is TRUE about impairment loss of a non-revalued asset?

It is recognized in profit or loss

impairment loss of a non-revalued asset cannot be recognized

It can be recognized in profit or loss or other comprehensive income

It is recognized in other comprehensive income

Answer

Correct Answer: It is recognized in profit or loss

Note: This Question is unanswered, help us to find answer for this one

88. Which of the following is a most conservative measure of liquidity?

current ratio

quick ratio

liquidiy ratio

cash ratio

Answer

Correct Answer: cash ratio

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89. Which of the following is the correct formula for calculating impairment losses on a loan?

Observable market price of a loan - Carrying amount of a loan

Observable market price of a loan - future value of expected future cash flows from a loan

Carrying amount of a loan - future value of expected future cash flows from a loan

Carrying amount of a loan - Observable market price of a loan

Answer

Correct Answer: Carrying amount of a loan - Observable market price of a loan

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90. If the Exercise Price of a purchased call option is less than Market Price, then which of the following is TRUE?

The effect of the purchased option is dilutive

The buyer will not be able to excercise the option

The effect of the purchased option is antidilutive

The effect of the purchased option is neither antidilutive nor dilutive

Answer

Correct Answer: The effect of the purchased option is antidilutive

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91. If the Exercise Price of a purchased put option is greater than Market Price, which of the following is TRUE?

The effect of the purchased option is antidilutive

The effect of the purchased option is dilutive

The buyer will not be able to excercise the option

The effect of the purchased option is neither antidilutive nor dilutive

Answer

Correct Answer: The effect of the purchased option is antidilutive

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92. Which of the following is TRUE about Impairment of assets?

Carrying amount < Recoverable amount

Present Market Value > Present Value of all future cash flows

Carrying amount > Recoverable amount

Present Market Value < Present Value of all future cash flows

Answer

Correct Answer: Carrying amount > Recoverable amount

Note: This Question is unanswered, help us to find answer for this one

93. Which of the following is a valid method to calculate impairment loss in case of a long lived asset?

By taking off asset's fair value from it's current market value

By taking off asset's carrying amount from it's fair value

By taking off asset's current market value from it's fair value

By taking off asset's fair value from it's carrying amount

Answer

Correct Answer: By taking off asset's fair value from it's carrying amount

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94. You declare a dividend. What happens on the cash flow statement and in which section?

Cash increases - Operating section

Cash increases - Financing section

Cash decreases - Investing section

No change

Answer

Correct Answer: No change

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95. In the United States, which of the following organizations mandate that financial reports adhere to GAAP standards?

FASB

SEC

IFRS

CFA

Answer

Correct Answer: SEC

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96. Under US GAAP, when must the fair value of an acquired firm's "in process research and development" be estimated?

Before Computing Goodwill

After Computing Expenses

After Computing Goodwill

Before Computing Expenses

Answer

Correct Answer: Before Computing Goodwill

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97. You have depreciation for the past year, what happens on the cash flow statement and in which section?

Cash increases - Operating section

No change

Cash increases - Financing section

Cash decreases - Financing section

Answer

Correct Answer: Cash increases - Operating section

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98. Unrealized gain and losses of ________ securities are reported in the Income Statement.

Trading Securities

Available for Sale Securities

Hold-till-maturity

Held-to-maturity

Answer

Correct Answer: Trading Securities

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99. You receive a dividend, what happens on the cash flow statement and in which section?

Non of the above

Cash increases - Financing section

Cash increases - investing section

Cash decreases - Financing section

Answer

Correct Answer: Cash increases - investing section

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100. In which of the following securities are unrealized gains and losses reported in Other Comprehensive Income (as a part of stockholder's equity)?

Held-to-maturity

Available for Sale Securities

Hold-till-maturity

Trading Securities

Answer

Correct Answer: Available for Sale Securities

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101. If Earnings before Interest and Taxes (EBIT) is $10,000, interest expense is $500 and number of outstanding common stocks are 20,000, which of the following is the value of interest coverage ratio?

200

1000

100

Answer

Correct Answer: 20

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102. Under US GAAP, minority (non controlling) interest in a subsidary can be reported in which of the following sections of a balance sheet?

Mezzanine Section

(All of these)

Liability Section

Equity Section

Answer

Correct Answer: (All of these)

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103. Which of the following is a Financing Activity as per US GAAP classification?

Proceeds from issuing stocks

Sales proceed from fixed assets

Available for Sale Securities

Interest Paid

Answer

Correct Answer: Proceeds from issuing stocks

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104. Which of the following is NOT a non-current asset?

Intangible assets

Property, plant and equipment

Unearned income

Amortization of intangible assets

Answer

Correct Answer: Unearned income

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105. When applying the full accrual method in retail land sales, which of the following conditions are required by GAAP?

(All of these)

Receivable are collectible

Receivables should not be subjected to subordination

Expiry of the refund period

Answer

Correct Answer: (All of these)

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106. Account receivables are classified as which of the following?

Assets

Liabilities

Expenses

Revenue

Answer

Correct Answer: Assets

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107. Which of the following methods of presenting cash flow is permitted under US GAAP?

Indirect

Average Cost

Both Direct & Indirect

Direct

Answer

Correct Answer: Both Direct & Indirect

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108. You pay a dividend, what happens on the cash flow statement and in which section?

Cash increases - Investing section

Cash decreases - Financing section

Cash increases - Operating section

Cash increases - Financing section

Answer

Correct Answer: Cash decreases - Financing section

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109. Which of the following consists of cash inflows and outflows from transactions that affect a firm's net income?

Cash flow from investing activities (CFI)

Cash flow from operating activities (CFO)

Cash flow from investing activities (CFI)

Cash flow from financing activities (CFF)

Answer

Correct Answer: Cash flow from operating activities (CFO)

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110. Which of the following is a US GAAP depreciation method for financial and tax reporting?

Modified Accelerated Cost Recovery Method

Straight line depreciation

Accelerated depreciation

(All of these)

Answer

Correct Answer: (All of these)

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111. The multiple-step income statement for a merchandiser shows each of the following features EXCEPT:

cost of goods sold

investing activities

sales revenue

gross profit

Answer

Correct Answer: investing activities

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112. Which of the following best describes Going Concern?

The decrease in goodwill that follows a decrease in revenue

The assumption that a company will operate indefinitely

The law of diminishing returns

The interest on accounts payable

Answer

Correct Answer: The assumption that a company will operate indefinitely

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113. Under GAAP principles, expenses have to be matched with revenues (as long as it's reasonable to do so). This is an example of which principle?

The Revenue Principle

The Matching Principle

The Cost Principle

The Historical Cost Principle

Answer

Correct Answer: The Matching Principle

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114. Which of the following correctly formulates current ratio?

Current Asset - Current Liabilities

Current Asset x Current Liabilities

Current Liabilities / Current Asset

Current Asset / Current Liabilities

Answer

Correct Answer: Current Asset / Current Liabilities

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115. Which of the following is the formula for return on equity (ROE)?

Sales / Net Income

Net Income / Equity

Net Income / Sales

Equity / Net Income

Answer

Correct Answer: Net Income / Equity

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116. Your accounts receivable drops from the prior year. What happens on the cash flow statement and in which section?

No change

Cash increases - Financing section

Cash increases - Operating section

Cash decreases - Investing section

Answer

Correct Answer: Cash increases - Operating section

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117. Which of the following is NOT a valid cost flow assumption for determining the inventory cost?

FIFO

LIFO

FILO

Average Method

Answer

Correct Answer: FILO

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118. Your accounts payable drops from the prior year, what happens on the cash flow statement and in which section?

Cash decreases - Financing section

No change

Cash increases - Financing section

Cash decreases - Operating section

Answer

Correct Answer: Cash decreases - Operating section

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119. True or false? GAAP is internationally based, whereas IFRS is US-centric.

True

False

Answer

Correct Answer: False

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120. Which of the following is an Operating Activity as per US GAAP classification?

Sales proceed from fixed assets

Cash paid to employees

Dividends paid to shareholders

Principal paid on debt

Answer

Correct Answer: Cash paid to employees

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121. Which of the following is an Investing Activity as per US GAAP classification?

Taxes Paid

Sales proceed from fixed assets

Interest Paid

Cash paid to employees

Answer

Correct Answer: Sales proceed from fixed assets

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122. A financial record that uses a highly volatile currency would violate which of the following principles?

The USD principle

The historical cost principle

The accounting entity principle

The monetary unit principle

Answer

Correct Answer: The monetary unit principle

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123. In which of the following are profits recognized in full when real estate is sold?

Full accrual method

Installment method

Cost recovery method

Deposit method

Answer

Correct Answer: Full accrual method

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124. Which of the following securities are purchased with the intent of holding them until maturity?

Trading Securities

Hold-till-maturity

Available for Sale Securities

Held-to-maturity

Answer

Correct Answer: Held-to-maturity

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125. Which of the following securities are purchased with the intent to profit over near term?

Trading Securities

Hold-till-maturity

Available for Sale Securities

Held-to-maturity

Answer

Correct Answer: Trading Securities

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126. In which of the following accounting methods is profit not recognized until cash payments are greater than the cost of property?

Cost recovery method

Installment method

Deposit method

Full accrual method

Answer

Correct Answer: Cost recovery method

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127. Your accounts receivable increases from the prior year, what happens on the cash flow statement and in which section?

Cash increases - Financing section

No change

Cash decreases - Operating section

Cash increases - Operating section

Answer

Correct Answer: Cash decreases - Operating section

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128. In which of the following inventory valuation methods is the oldest cost of goods sold (COGS) entry processed first?

Average Cost

FILO

FIFO

LIFO

Answer

Correct Answer: FIFO

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129. Which of the following is the correct formula for calculating basic EPS as per US GAAP?

weighted-average number of common shares outstanding / income available for common stockholders

Annualized Earnings / # of outstanding stock

Quartely Earnings / # of outstanding stock

income available for common stockholders / weighted-average number of common shares outstanding

Answer

Correct Answer: income available for common stockholders / weighted-average number of common shares outstanding

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130. Which of the following is prohibited in US GAAP?

Reversal of impairment loss

Recognition of impairment loss

Measurement of impairment loss

Allocation of goodwill

Answer

Correct Answer: Reversal of impairment loss

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131. ABC company purchases a plot of land for $10,000. In the following year the value of the land increases by 10%. What value should this asset be recorded as?

$10,010

$11,000

$10,000

$10,100

Answer

Correct Answer: $10,000

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132. Which of the following consists of cash inflows and outflows from transactions related to a firm's capital structure ?

Cash flow from investing activities (CFI)

Cash flow from financing activities (CFF)

Cash flow from investing activities (CFI)

Cash flow from operating activities (CFO)

Answer

Correct Answer: Cash flow from financing activities (CFF)

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133. Cost of good sold (COGS) reflects the cost of the most recent purchase in which of the following inventory valuation methods?

FILO

Average Cost

LIFO

FIFO

Answer

Correct Answer: LIFO

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134. When should costs be recognized?

(None of these)

When the cost has been paid

When they are probable

Only when an invoice is sent

Answer

Correct Answer: When they are probable

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135. Which of the following securities are reported on balance sheets at fair value?

Available for Sale Securities

Available for Sale and Trading Securities

Held-to-maturity

Trading Securities

Answer

Correct Answer: Available for Sale and Trading Securities

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136. Which of the following securities are purchased with the intent of NEITHER holding them till maturity NOR to get profit over near term?

Hold-till-maturity

Available for Sale Securities

Held-to-maturity

Trading Securities

Answer

Correct Answer: Available for Sale Securities

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137. Your accounts payable increases from the prior year, what happens on the cash flow statement and in which section?

Cash increases - Operating section

Cash increases - Financing section

Cash decreases - Operating section

No change

Answer

Correct Answer: Cash increases - Operating section

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138. Which of the following securities are reported on the balance sheet at amortized cost?

Trading Securities

Hold-till-maturity

Held-to-maturity

Available for Sale Securities

Answer

Correct Answer: Held-to-maturity

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139. Net Income is $150,000, dividends paid to preferred stock holder is $50,000 and weighted-avg number of common shares are 10,000. What is the basic EPS as per US GAAP?

$10

$30

$20

Answer

Correct Answer: $10

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